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Alyeska cuts off fiber-optic firm

Kanas Telecom Inc. called unreliable

Posted: Sunday, February 27, 2000

ANCHORAGE - Operators of the trans-Alaska oil pipeline have severed their $225 million contract with Kanas Telecom Inc., claiming the company's fiber-optic cable is not reliable enough to run the 800-mile pipeline.

But Mike Williams, chief executive of Anchorage-based Kanas, says Alyeska Pipeline Service Co. is on ``dodgy legal ground'' and might not be able to just walk away.

And he said Alyeska officials have done everything but try to make the $80 million project a success.

Williams said Kanas' line will continue operating for other customers. He said he might countersue, but is still ``very open'' to returning to the bargaining table. Telecom giant MCI WorldCom is backing Kanas on a plan that would bring the cable on-line, an effort that could involve having Anchorage-based General Communication Inc. run the line, according to Williams.

Alyeska officials say they've heard from MCI, but aren't interested.

``MCI did not have a proposal of how to proceed, and we were disappointed about that,'' said Melphine Evans, Alyeska's chief financial officer.

The high-stakes dispute goes back to the mid-1990s, when Alyeska decided to update the communications system for the 800-mile pipeline from Prudhoe Bay to Valdez.

The current microwave communication system controls 62 remote-gate valves, which block sections of the line should there be a rupture. That system has sometimes failed since the pipeline was completed in 1977.

Alyeska wanted to replace it with a fiber-optic cable, which they hoped would be more reliable, plus offering expanded communications for other uses.

Kanas was formed to own and lay cable along the pipeline. The cable is also connected to Fairbanks and used by some GCI customers.

Kanas is owned by Nebraska-based Adesta Communications and three Alaska Native corporations: Arctic Slope Regional Corp., Ahtna Inc. and Chugach Alaska Corp.

Adesta built the cable and has operated it for Kanas. Under a 15-year contract, Alyeska was supposed to pay Kanas $1.3 million per month to use the cable.

But after it went into operation in 1998, Alyeska officials began voicing concerns about the line's reliability. While they're willing to use it for voice and data transmission, they've refused to transfer the valve controls to the new system.

Williams said Alyeska has been vague about its concerns.

But Evans said Kanas has had more than a year to bring the cable up to design standards.

``We have been a very patient customer, but we can't wait any longer,'' she said.

Williams is aware of two problems and said he has a $10 million plan in the works to fix them.

One is a design flaw revealed last December when an avalanche in Keystone Canyon slashed the cable.

The second problem is going to take time to fix, perhaps until November, he said. Kanas has found at least one case where water seeped into the line and damaged it during freezing and thawing.

Evans said Kanas submitted a plan to deal with the problems but didn't outline details.

Williams blames most of the problems on what he calls Adesta Communications' ``poor leadership and supervision.''

GCI spokesman David Morris said his company is talking to Kanas, but there's no agreement.

An Adesta spokeswoman said her company plans to state its position on the pipeline cable on Monday.

Adesta used to be owned by MCI but was sold to Able Telecom Corp. in 1998. Williams said MCI - which owns 20 percent of GCI - still holds the financial contract for the Kanas cable.



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